Source: Moneycontrol.com
Moneycontrol Bureau

It took a beating over a disappointing first quarter and then uncertain global economic environment. However, Infosys shares have seen good momentum over the last one month rising over 15% as the rupee has depreciated. The stock surged further over 5% on Wednesday in big thumbs up from investors to the technology bellwether’s second quarter results, which were tad higher than expected.

Infosys also only marginally cut its US dollar revenue guidance for the full year due to macroeconomic uncertainties in US and Eurozone, while sharply raising its rupee revenue guidance on the back of the rupee depreciation. This also relieved the street worried that clients in US and Europe would delay new contracts and cut discretionary spends given the economic turbulence, and thus hurt earnings of software service providers in the second half and the next fiscal.

“A lower than expected US dollar revenue guidance cut and weak rupee are the relative positives from second quarter,” said Viju George and Amit Sharma of JP Morgan.

Commentry from Infosys suggests that market concerns on project delays and spending cuts might be premature.

“When we talk to our clients we are definitely seeing delays in decision making. Scrutiny of investments, rethinking of investments we are seeing. At the same time we are not seeing projects cancellations or programme cancellations, we are not seeing budget cuts for this year at this point in time but we are in an uncertain environment,” said Infosys CEO and MD SD Shibulal.

Infosys reported a second quarter consolidated net profit of Rs 1,906 crore up near 10% from a year ago, while revenue was up around 17% to Rs 8,099 crore. A CNBC-TV18 poll of analysts had expected Infosys’ July-Sept net profit at Rs 1,891 crore, on revenue of Rs 8.080 crore.

It now expects revenue in the range of USD 7.08-7.20 billion, up 17.1-19.1% year-on-year, lower than the USD 7.13-7.25 billion it had expected earlier. It expects full year earnings per American depository share (ADS) in the range of USD 3.02-3.06, up 15.3-16.8% from a year ago.

In rupee terms, Infosys expects EPS of Rs 143.02-145.26 for 2011-12 (Apr-March), much higher than Rs 128.20-130.08 it had expected earlier, due to the recent depreciation in rupee. Revenue for the full year is expected to rise 21.8-24% at Rs 33,501-34,088 crore.

“I think, extremely well set of numbers, they are ahead of what the market has been expecting and it’s been a long while after which Infosys has not only beaten their own guidance but beaten the street expectation,” Nilesh Shah, MD & CEO of Envision Capital told CNBC-TV18.

“The guidance for second half indicates that demand is still in good shape in this challenging environment. We believe that the stock is likely to move up due to these positives,” said George and Sharma of JP Morgan, who rate it “neutral.”

Shashi Bhushan of Prabhudas Lilladher said Infosys results and marginal cut in US dollar revenue guidance were ahead of consensus estimates. He has a “buy” rating on the stock and has recommended a switch to Infosys from Tata Consultancy Services, citing its lower exposure in Europe.

Barclays Capital said the strong guidance affirmed its positive stance on Infosys, and the second quarter numbers clearly indicate a turnaround for the stock.

It believes that the negative impact of a decline in revenues from one of Infosys’s top clients British Telecom is over and revenue growth should exceed peers going forward.

“Post the previous few quarters of weak results, the expectations from the company remain low. As expectations reset going forward, we believe that Infosys could be the biggest outperformer in the Indian Tech space,” Barclays said maintaining its “overweight” rating on the stock.

However, not everyone seems happy post Infosys results. CLSA for instance has maintained its “underperform” rating on the stock. Here is what it said post Infosys’ results:

“Dollar revenue growth (4.5% sequentially) for second quarter missed expectations again. In light of Infosys’ revenue performance in the last 3 quarters and the current macro issues, Infosys’ revised dollar revenue growth guidance of 17.1-19.1% does look pretty aggressive. It implies 5%+ sequential growth in each of Dec/March quarters, which are seasonally weaker and almost always have shown lower growth than Jun/Sept quarters.”

“Upward revision of EPS guidance to Rs143-145 (driven by a benign currency assumption) will excite a section of the street. However, we see these revisions as late re-alignments versus the rally seen across tech stocks in the last 3 weeks,” it further said.

At 2:00PM, Infosys shares were traded up 5.5% at Rs 2,652.95. Barclays has a target price of Rs 3,050 on the stock. Prabhudas Lilladher sees it touch Rs 3,000, while JP Morgan has a target of Rs 2,700 on Infosys shares.